The zombie savings accounts you need to ditch now paying just 0.05% interest
INTEREST rates have been on the rise for years now, but thousands of us still get a pittance on our savings accounts.
Since December 2021, the Bank of England has raised interest rates 14 times, taking us from a base rate of 0.10 per cent to 5.25 per cent.
As a result, the average savings account now pays a healthy 3.12 per cent return.
Or, if you hunt out the best buys, you could be earning as much as 5.2 per cent on your spare cash.
But there are still zombie accounts out there that are punishing loyalty with a very low interest rate.
Zombie accounts are ones that have closed to new customers and, as a result, have slashed the interest rate.
Loyal customers who have not shifted their money to a new account are usually left earning less than 0.5 per cent.
Anna Bowes, co-founder of SavingsChampion.co.uk, says: “It’s shocking to see that even though the base rate has increased, there are many savings accounts that are still paying less than inflation.
“And some have not seen a single increase for many years.
“Virgin Money and Saga, for example, are still paying just 0.25 per cent AER on a number of old, closed accounts. In the meantime, you can earn over 5 per cent AER elsewhere.
“On a balance of £1,000, rather than earning just £2.50, by switching you could earn £50 a year instead. It’s like free money.”
The worst zombie account pays just 0.05 per cent.
On a £10,000 balance, that amounts to a £5 return over 12 months, compared to a £520 return in a best buy account paying 5.2 per cent.
Here, Ruth Jackson-Kirby looks at which accounts you should leave — and how to do it.
How to ditch a ‘dead’ account
DITCHING a zombie account is simple, but first make sure that you want to.
Check the interest rate on your existing account — it will be on your statement or you can log in to your online banking to see it.
Then compare that rate with the best buy accounts, which you can find at Moneyfacts compare.co.uk or Savings Champion.co.uk.
If your existing account is paying under 4.5 per cent, you can do better elsewhere.
Anna says: “The reluctance to switch accounts often stems from a combination of inertia and lack of awareness.
“Many are unaware of the competitive rates available, while others might find the process of switching accounts daunting.
“However, with the advent of online banking and websites such as SavingsChampion.co.uk, it’s never been easier to find and switch to a better savings account.”
Once you’ve found a better rate elsewhere, apply for the account and move the money from your existing account into the new one.
When you are all set up with your new top-tier savings account, don’t become complacent. Check the small print.
Is your new interest rate guaranteed for a set period (often 12 months) or is it variable?
If it is guaranteed, set a reminder in your calendar to shop around for a better rate when that rate ends.
Lesser-known cash savings providers offer the top rates, but people can be wary because of the ‘worry of the unknown
Anna Bowes, co-founder of SavingsChampion.co.uk
If it is a variable rate, check it every six months or so to see if it has fallen or if there are better rates available elsewhere.
If you want to get your savings working hard and earning you a decent return, you have to be nimble and ready to move to a better paying account regularly.
One trap to avoid, though, is just staying with the big names.
Anna says: “Lesser-known cash savings providers offer the top rates, but people can be wary because of the ‘worry of the unknown’.
“But it’s because they are less known that these providers need to work harder to attract new customers, which means they offer the most competitive rates.
“As long as you check that your money will be protected by the Financial Services Compensation Scheme (FSCS), there is no need to be worried.”
Highest rates to switch to
WANT to get the best rate on your savings? Be prepared to open an account with a bank you may not have heard of before.
But pay close attention to the terms and conditions.
The best rate right now is 5.2 per cent from Ulster Bank’s Loyalty Saver. You will need to maintain a balance of at least £5,000.
If you fall below, the rate drops to 2.25 per cent.
Alternatively, Chase pays 5.1 per cent on its Chase Saver Boosted Rate Offer.
Opened and operated via an app, this account is only available to Chase current account customers.
But it is a decent current account that pays 1 per cent cashback on your spending for the first year, so may be worth considering.
Third in the table is Oxbury Bank’s Easy Access Account Limited Edition 1.
This pays 5.02 per cent, but you must deposit at least £20,000.
For a straightforward easy access savings account with a good rate and no tricks, try Wealthify. Its Instant Access Savings account pays 4.91 per cent on balances from £1.
Your interest is paid monthly and you can access your cash whenever you like. Just keep an eye on the rate as it is variable.
New rules
NEW regulations that oblige banks to offer fair value to customers were introduced last summer.
Meagre interest rates do not represent fair value, but the rule changes only cover new accounts, not old ones. However that will change soon.
James Hyde, from Moneyfactscompare.co.uk, says: “Rules regarding closed (zombie) accounts come into effect this summer, so it remains to be seen if there is more urgency to improve rates going forward.
“As always, customers are encouraged to proactively monitor savings rates.
People should be prepared to switch if they feel their loyalty is not being adequately rewarded.”